I’ve written before about two distinct approached to SaaS. SaaS/s – where the offering merely substitutes the incumbent offerings, and SaaS/v where the product adds a significant value into the mix. These two classifications, while admittedly fairly chunky, fall within the thrust of Clayton Christensen’s book “The Innovator’s Dilemma”, in which Christensen contends that there are two types of technological advance – sustaining and disruptive ones. These classifications, rather than focussing on technological change, rather look at customer perception – does the product in question feel like a whole new paradigm?

So how does this relate to SaaS?

Well in the land grab that seems to be going on with SaaS vendors, those that providing SaaS/s or sustaining advance generally have only one dimension within which they can differentiate themselves from the other offerings – price. It is for the reason that we’re seeing free beta trials, lowering price points and the like – they’re all levers to build a customer base for a product that doesn’t really disrupt the status quo – at least in the mind of the customer. (and please, once and for all can we stop saying that merely providing an application “on-demand” constitute disruption. Sure it’s handy, sure there are advantages but it’s an attribute, not a disrupter by itself).

So vendors drop their prices, their competitors follow suit and all of a sudden we’re in a race towards zero. It’s not smart and it’s simply not viable.

So what’s a business to do?

Well clearly a rationalisation is needed – despite the promise of the long tail providing almost limitless opportunities for vendors to provide a tailored offering to an almost limitless number of distinct verticals, the reality is that we’re seeing a significant amount of homogenisation in the SaaS for small business space – for every couple of dozen “me too” offerings there is only one offering that one could call disruptive form the user perspective – I sometimes wonder if sufficient analysis has taken place to really assess what user want and need, and what will really capture their imaginations.

Perhaps it’s time to look for the vendors that are providing truly disruptive solutions – when looked at through the market’s eyes.

Kelvin Hartnall has an interesting post where he does a deep dive into one SaaS vendor, Xero, and looks at whether they’re a disruptor or a sustaining innovation. What’s refreshing in his post is that, despite rightly pointing out that Xero (and SaaS accounting in general) is a radically different offering, and despite displaying the SaaS customer benefits that we all know about, Kelvin points out that “a sustaining innovation is not based on the actual technology but on how the market values the improvement”.

The post is interesting but strikes a discord when read in conjunction with the recent market acquisition data put out by Xero in which they report that close to 50% of new customers come from a history of no accounting software. Given that this is the case, it could be argued that SaaS applications that manage to convert significant numbers of users from paper based systems to web based ones is in fact disruptive.

For example, and without being privy to the data, I’d surmise that Google docs has a very low number of users who did not previously use some type of office productivity suite – this being the case it is a sustainer, true it moves people off MS Office and onto another product, but arguably doesn’t change the dominant usage paradigm.

So in a decades time which offerings do you think we’ll be able to look back and say were the disrupters of our time? Keen to hear your thoughts.

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Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. His business interests include a diverse range of industries from manufacturing to property to technology. As a technology commentator he has a broad presence both in the traditional media and extensively online. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

3 responses to “Disruption is in the Minds of the Users”

Interesting post Ben. I just thought I’d add a comment here as to why I concluded that Xero fails to be a disruptive technology despite the market acquisition data. Xero’s market acquisition data is evidence that the acquired customers are coming from an underserved market. But I’m not sure that is sufficient for it to be disruptive. For a technology to be disruptive, the incumbents need to allocate their resources to other projects and fail to meet the competitive threat. This often occurs if the technology is much cheaper, has lower margins, and fails to meet the requirements of the main market. Incumbents dismiss the area for capital investment when attributes like these exist. So a classic example is the PC which disrupted the mini-computer market; even though the mini-computer incumbents could see what was happening, it never made economic sense to them to invest in this market before it was too late.

With Xero, it is a more expensive offering than purchasing a desktop accounting system such as MYOB or Sage. If Xero are able to maintain their pricing, then they will have very good margins. Therefore it would make sense for any well run incumbent to put capital investment into a similar SaaS product. So that is why I have concluded that Xero isn’t a disruptive technology, and I predict that we will see some credible attempts at competition from the incumbents.

As for predicting new disruptive technologies, the following are my predictions:

I would argue that most of what we see today are existing applications that have been SaaSified. This is hardly disruptive. You mentioned Google docs, and I see that as taking MS Word and simply porting it over to the Web. Sure, it offers distinct advantages such as the ability to collaborate. But I don’t feel it is disruptive.

When we think of disruptive behavior in the SaaS space, I think we should focus on the paradigm shift in the way software is delivered instead of the shift in usage. I see disruption in revenue streams of businesses, disruptions in how buyers conduct due diligence, disruptions in how software is designed moving forward.

That was a great post and the perception is exactly why there is a tremendous amount of confusion defining the differences between an ASP and SaaS. People are just making thing up. I recently joined a networking group called “SaaS” and I have to say that I was utterly stunned by some of the content. One in particular was a self proclaimed expert asking if it would be ok to call his new software “on-premise SaaS!”